When interest rates are low, many former clients ask if they should consider refinancing. While refinancing may sound like a good idea, it may not make sense for everyone.
If asked, I tell my clients about the general rule-if the current interest rate on their mortgage is at least 2% higher then the present going rate, refinancing might be the thing to do.
I also ask my clients how long they plan to stay in their house after refinancing. Again, there is another general rule- plan to stay in your home for at least 3 years to be able to see the full effect of the savings on refinancing.
Homeowners need to understand that in many ways refinancing is a similar to their experience of applying for the original loan. A new application needs to be made and there will be a credit check. Costs and fees will be involved. The bank charges fees; there are costs for a new appraisal, survey and title search.
A title attorney gave me this formula to help with the decision to refinance-divide the total cost of refinancing by the monthly amount you will save. This will give you a break even point. If a home owner plans on staying in their house past the break even point, it might be worth while to refinance.
I like this refinancing calculator: www.mortgage101.com/calculator/refinance
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